NEWS

On 9 Jul, OSK Equity Holdings Sdn Bhd (OSKE) acquired 4.41% of OSK Holdings via direct business transaction and open market.

Post acquisition, OSKE together with Tan Sri Ong Leong Huat and persons acting in concert hold a total of 36.72% of OSK Holdings. Thus, it has triggered a Mandatory General Offer (MGO) at an offer price of RM1.68.

MGO is conditional upon major shareholder obtaining more than 50% stake and the offeror intends to maintain the listing status.

Comment

• We view the offer price as not attractive given that the offer price is significantly below its SOP of RM2.45 as well as below the value of its 9.82% in RHB Cap which is worth RM2.14.

The major shareholder’s decision to add on its stake in the company (which triggered the MGO) reflects its confident in the value of the company.

Moreover, given the intention of maintaining the listing status, we believe the MGO is more a regulatory issue rather than taking the company private.

Thus, minority shareholders should not accept the offer.

Catalysts

• Significantly cheaper proxy to RHB Cap at 38% discount.
• Plaza OSK (RM157m or 16 sen per share), adjacent land (RM149m or 15 sen per share) as well as other assets and businesses free.
• Development of land adjacent to Plaza OSK and/or REIT to unlock values.
• Potential distribution of dividend from RHB Cap provides decent yields.

Risks

No plans to unlock values or pay dividend.

Forecasts

Not Applicable.

Rating

NOT RATED

Positives – Deep values as shareholders get huge discount to its stake in RHB Cap as well as the two major properties. Alternatively, it is a significantly cheaper proxy to RHB Cap.

Negatives – no plans to unlock values or pay dividend.

Valuation

Assuming a simple SOP calculation and a 20% holding company discount, the company should be worth RM1.96. Note that our SOP is based on RHB Cap’s current market price. If we use HLIB’s target price for RHB Cap of RM10.08, OSK’s SOP would increase to RM2.87 and indicative value of the company, after a 20% discount would be RM2.29.

Source: Hong Leong Investment Bank Research - 10 Jul 2013